Archive for the ‘Homebuyer assistance’ Category

This seems to be the million dollar question right now as home buyers survey the lack of inventory and multiple offer situations present in many markets. A strong seller’s market and high prices make some buyers nervous. So is it better to buy now or wait?

There are a few very good reasons why now is the time to make that home purchase:

Interest rates are rising – We have already seen this happen and word is they will do so again this year, likely several times. This affects mortgage payments and down payments, so jumping in and securing that lower rate now could be smart. It is also important to note that some lenders are charging a lot more for interest rate lock extensions, so that is something to think about if you have a long escrow period or are pursuing a short sale.

Lack of inventory – Inventory in many markets is still very low – San Diego County included. Many buyers cannot find properties to purchase and when they do there are often multiple offers, especially in the $650,000 and under price range. Cash buyers are out in force as well in many lower range markets, making it even harder for first time home buyers. Being picky is getting more and more difficult – right now is a good time to be preapproved and ready to write an offer once you find a home that meets your criteria. See the home as soon as it comes on the market and submit your best offer right away.

Prices are not dropping as we head into the “busy season” – Lack of inventory is making it difficult as demand outpaces supply. Unless this changes we will not likely see price drops in the busy Spring and Summer months to come. The buyer who decides to wait this period out may find herself down the road with still low inventory and higher interest rates.

Here is an example: A house that currently sells for $766,000 with an interest rate of 4.75% and a 20% down payment would yield a payment of a little over $4000 a month. To get that same payment down the road with a home price drop to $727,000, assuming a higher 5.125% interest rate increase, the buyer would be losing $1585 over 3 years. So even if prices drop 5% and rates increase 3/8th of a percent, the buyer who purchases with a lower rate now will be ahead in the long run.

Uncertainty – Worry about the future and economy is still prevalent among home buyers. Uncertainty about taxes and home write offs, as well as the expected rise in interest rates, make some buyers hesitate to make big purchases. The real estate market, like any market, is cyclical. If you are buying a home with a long term commitment then it is a great time to do so, before there are more rate hikes.

Before you decide whether it is best for you to purchase now or wait, it is important to discuss your scenario with you accountant or financial adviser, an experienced real estate agent in your area and your mortgage professional. Information is power.

A new study was just released that named San Diego, Carlsbad and San Marcos the #1 toughest housing markets in which renters can purchase homes. For every 100 homes available for purchase, there are slightly over 5 renters who can qualify to buy the home (according to research firm SNL Real Estate).

The recent market increase has made it more difficult for people hoping to purchase homes, pricing many out of the market. Prices in San Diego county rose 19.4% year over year as of January 2014, resulting in a rise in the median home price, to just under $477,000. Today’s buyer needs to earn over $81,000 to purchase a median-priced home.

While many economists and real estate experts believe the price increase is cooling off, there are other factors in play that could continue to make it difficult to afford a home here in San Diego county:

Low inventory still plagues many parts of the county, so that many buyers are competing for the same properties…which of course could have the effect of actually increasing prices but we will have to see.

Theability to obtain financing is still very challenging for many would-be buyers. Lenders are not making it any easier to obtain loans. Plus, with new reports showing that 1/3 of home sales are paid for in cash (click here for more on this statistic), this also presents a challenge for a buyer who needs to obtain a loan – most sellers will obviously opt for a cash buyer over one who has to qualify for a loan.

If you are a renter looking to purchase, there are a few things you should do to get ready, so that once you find the right home you are able to make a solid offer:

– Get preapproved. It is very important to speak with a mortgage professional so that you know exactly how much mortgage you can afford. I highly recommend a formal preapproval, where the mortgage professional analyzes your earnings, debt and other factors to come to an accurate assessment of your ability to purchase.

– Find a great real estate agent. You need to find someone who has experience, patience, and really is an expert in the areas in which you wish to hunt for properties. Your agent needs to be on your team, whether you like to search for properties on your own or have her/him do so for you. He or she can help educate you on different areas/neighborhoods, etc., so take advantage of their expertise. It costs you nothing, but will be a big benefit to you if you have someone who can answer questions provide further information, and walk you through all the paperwork and legalities.

– Stop spending on any big ticket items. If you are in the market to purchase a home, it is imperative that you stop spending money on any big items, like furniture, cars or trips. Lenders scrutinize all spending during the loan approval period, so just to be safe it is smart to stop spending from the start.

The bottom line is to not be discouraged if you are a renter looking to purchase a home. In fact, in March of this year 30% of homes were purchased by first time buyers, so it can happen! Just make sure to get all your ducks in order so that you are in the best position to make an offer when you do find that perfect home.

There has been a lot of speculation as to what will happen in the real estate market as we head into a new year. Here is my take on real estate market resolutions for 2013:

Home prices will rise, slowly. Based on the current market and the rise in prices in 2012, especially toward the end of the year, I believe that prices will continue to rise, although at a very slow pace. People who are thinking they should wait to sell in order to make a big profit will be waiting a long time, but those who see the opportunities – demand, low inventory and continued historically low interest rates – have the chance to sell in what will slowly become (if it’s not already) a seller’s market. Those homes that show very well and are well-maintained will garner the most interest and could set trends for neighborhood comparables.

Interest rates will remain low. Because of continued uncertainty with the economy interest rates have to remain low. If the feds raise them at this volatile point, when Americans are just beginning to feel comfortable spending again, albeit cautiously, it would be devastating. I do not believe that such a risk is healthy and thus I think rates will stay low for some time.

Inventory will rise. This one is hopeful, but I truly believe that due to the fact that markets are becoming seller’s markets, more people will decide to list their homes in the coming year. 2012 was a difficult year for inventory in most areas, and San Diego county was no exception. Multiple offer situations on the first day properties listed were not uncommon, and many buyers ended this year without the new homes they so desired, feeling frustrated. I think savvy homeowners will see the silver lining in selling their homes as we head into the new year.

Distressed sales will slow. Many lending institutions and federal and state governments vamped up programs in 2012 to assist troubled homeowners, and the numbers from many of these programs indicate that they are working. There are still many more people who need assistance, but I believe that we will see fewer foreclosures. Most banks seem to have warmed to loan modifications and short sales, bypassing the rush to foreclose.

More underwater homeowners may be able to refinance in the future. There is finally a rumbling about extending refinancing programs to those non-equity homeowners who fall outside of the Fannie Mae/Freddie Mac loan requirements – this could be HUGE and prevent a slew of foreclosures and even short sales down the road…this will be the real estate story at the top of my watch list in 2013.

All in all, the housing market it improving. It is important to mention, as I always do, that every market is different. If you want specific information about your area/market, consult with a qualified local agent before making any decisions about buying or selling real estate. One more caveat – keep in mind that market improvement is relative. The above analysis is based on numbers that show improvement in the local San Diego market, as well as reports from trusted sources and personal experience working in the local market.

I think 2013 will be a great year for real estate. Please let me know if I can provide any information about your San Diego home sale or home search, and have a very happy New Year!

Do you know the difference between a pre-qualification and a preapproval for a mortgage? Surprisingly, many buyers – and even many agents – do not. It is important to understand the difference before you prepare to search for a property.

Pre-Qualification: When a buyer gets pre-qualified for a mortgage, it means that s/he has submitted information to the lender regarding employment/earnings and assets. The borrower discloses what amount s/he has for a downpayment, and provides the lender with a credit score. Not much digging is done to verify the information, and pre-qual letters are fairly easy to obtain.

Some lenders require proof of funds to be shown (which can be done by submitting a bank/securities statement), and pre-qualification letters state that a loan will be granted based on the borrower’s ability to satisfy the conditions – they are not a guaranty for a loan. These letters are the most common types presented with offers, as many banks can evaluate a borrower, but cannot truly evaluate whether s/he can purchase a particular property until they have a fully executed contract and related documents.

Preapproval: Getting preapproved means that a lender took the time to look at a potential buyer’s documentation of income and assets. Credit scores are pulled, and the buyer is examined more thoroughly. Borrowers must provide 1099’s, W2’s, account statements, employment stubs and other information if necessary. Once the preapproval is drafted it is still not a guaranty that the borrower will get a loan. There are other conditions that must be met, which will become more clear once a property is identified for purchase.

No matter which type of letter is obtained, it is important to obtain one before writing an offer so that the buyer looks strong in the presentation. Many listing agents will not respond to offers unless there is a preapproval or pre-qualification letter submitted simultaneously.

Interestingly, most listing agents do not scrutinize whether a borrower submits a preapproval or pre-qualification letter (and I have found that many do not even know the difference), but many do ask that proof of funds (funds necessary to cover any downpayment) be submitted with an offer and the letter. None of these things provide iron-clad proof that the buyer will qualify for the loan, but they do reassure the seller and listing agent that the potential buyer at least looks positive on paper.

It is important in today’s market – where we are seeing many properties obtaining multiple offers – to look as strong as possible. Taking the extra time at the start to obtain a preapproval is a smart decision that could mean the difference between getting your offer accepted over that of another buyer.

If you are considering purchasing a home, it is important to consult with a mortgage professional right away, so that you can figure out for how much of a loan you will qualify. This will allow you and your real estate agent to focus on properties in the right price range, providing a better chance that you will be able to successfully qualify for a loan when you find the right home.

So many sellers ask me when they can repurchase after a short sale, foreclosure or bankruptcy. Following is a great synopsis of when a seller can repurchase after a distressed sale or bankruptcy, based on the type of loan/bankruptcy:

FHA Loan:

Chapter 7: 2 yrs.

Chapter 13: 2 yrs.

Foreclosure: 3 yrs.

Short Sale: 3 yrs, * unless borrower was not late prior to short sale (on ANY obligation) and was not trying to take advantage of the market.

VA Loan:

Chapter 7: 2 yrs.

Chapter 13: 2 yrs.

Foreclosure: 3 yrs.

Short Sale: 3 yrs.

VA High Balance:

Chapter 7: 7 yrs.

Chapter 13: 7 yrs.

Foreclosure: 7 yrs.

Short Sale: 7 yrs.

Conventional Loan:

Chapter 7: 4 yrs.*

Chapter 13: 2 yrs. from discharge date or 4 yrs. from dismissal date*

Foreclosure: 7 yrs.*

Deed in Lieu:

• 2 yrs. if subject loan is 80% ltv or less

• 4 yrs. if subject loan is 90% ltv or less

• 7 yrs. if subject loan is over 90%ltv

Short Sale:

• 2 yrs. if subject loan is 80% ltv or less

• 4 yrs. if subject loan is 90% ltv or less

• 7 yrs. if subject loan is over 90% ltv

BK Chapter 7: 4 year waiting period is required measured from the discharge date or dismissal date of the BK. A 2 yr. waiting period is permitted if extenuating circumstances can be documented.

BK Chapter 13: 4 year waiting period is required for a Chapter 13 dismissal. A 2yr. waiting period will be permitted with extenuating circumstances (* See below)

Multiple BK filings: for a borrower with more than one BK filing in the last 7 years, a 5 yr. waiting period is required.

Foreclosure: 7 year waiting period is required, and is measured from the completion date of the foreclosure sale date.

A 3 yr. waiting period is permitted if extenuating circumstances can be documented and the loan-to-value rules are applied, MUST to be a purchase of a principle residence or a limited cash out refinance on an owner occupied, second home or non-owner.

*What are extenuating circumstances? They are non-recurring events that are beyond the borrower’s control that result in a sudden, significant and prolonged reduction in income or a catastrophic increase in financial obligations.

This analysis was provided courtesy of Daniel Dobbs with American Commerce Mortgage. He can be reached at 949-250-3981 or dandobbs6@gmail.com.

I read an astonishing statistic today: Zillow reported that about 47% of homebuyers think they own a home once they have signed the purchase contract. Not only did this shock me, but it really made me upset. Someone – the agent – is not communicating. This is way too important to not discuss with buyers, and we have to have that conversation with them, every time!

After reading the statistic and tweeting about it, one of my colleagues responded that his clients changed the locks on their soon-to-be new house, before the close of escrow.

I decided to have a look at our residential purchase contract to find language that specifically states WHEN the buyer owns the home for which the contract was written. I could not find any, but there are numerous mentions of escrow and what happens during that period. I suppose those who drafted these contracts either assumed the buyers would figure it out that escrow must actually close before they become home owners, or assumed their agents would explain this.

While I think maybe the contract drafters may want to consider including a layman’s paragraph about actual ownership and and what point that is established, it is also extremely important for the agents to be sure to educate their buyers. Whether or not my buyers want to read it, I briefly explain what is on each page as they are signing, and always suggest they read it.

The lesson to be learned here is that if you are a real estate agent, you need to be candid with your clients. Explain everything, even if you think your clients already know it, or think it is silly you should do so. Buyers: if you do not understand something please ask your agent – that is their job, they have a fiduciary relationship with you and keeping you informed is of utmost importance.

It is official – Congress has voted to bring back the higher FHA loan limits. The measure, once signed by the President, will push the FHA conforming loan limit in the highest priced real estate markets (like California and New York) to $729,750 through 2013. The current limits cap at $625,500 in these markets; they were cut back as of October 1, because of Congress’ failure to extend them.

The limits had been temporarily raised for FHA and Fannie and Freddie during the financial crisis, when it became more difficult to obtain loans from banks.What does this mean for buyers? In the higher priced markets, it means buyers can get higher loans with lower downpayments, a move that prevents them from being locked out of certain neighborhoods due to lack of extra cash.

The new extension applies only to FHA loans, not Fannie and Freddie. FHA, which is a mortgage insurer (not a lender), provides mortgage insurance to buyers who do not have large enough downpayments to obtain prime loans. Borrowers with FHA loans can put as little as 3.5% down on the purchase of a home.

Real estate contracts in most states are and have always been pro-buyer, especially here in California. Buyers usually have a contingency period, in which they can complete home inspections, get their loan approved and any other things that are important before contingencies must be removed and they risk losing their initial deposit. What most people don’t know is that a buyer needs to have a legitimate reason to cancel the contract, even during the contingency period.

The California Residential Purchase Contract (RPA) gives the buyer several “outs” that allow the buyer to cancel the contract without being penalized and losing the initial deposit.

1. Loan contingency. This is one of the main reasons contracts cancel. The buyer’s lender uses the contingency period – standard is 17 days unless the agent wrote in a different number – to get the buyer’s loan approved. During this time period if the lender finds the buyer cannot qualify for a loan, the buyer can effectively cancel the contract.

2. Appraisal contingency. Likewise, all loans rely on appraisals of the property involved. If the property does not appraise for the agreed purchase price the lender will not fund a loan. The buyer at this juncture can go to the seller and renegotiate the purchase price as per the appraisal. If the seller refuses to do so the buyer can cancel the contract. However, it is important to keep in mind that once a buyer hands the appraisal over to a seller, the seller is made aware of the appraised value of the property in respect to potential future buyers. If the seller’s property cannot appraise for the amount he desires, his only hope of getting that amount is to find an all cash buyer who does not mind paying more than appraised value – good luck with that one.

3. Buyer’s right to accept the condition of and matters affecting the property. If during the contingency period the buyer discovers there are problems or issues with the property that the buyer does not want to or cannot afford to deal with, the buyer has the option to cancel the contract. Some examples include where the buyer’s home inspector discovers a plumbing or electrical problem that will be costly or is dangerous, and the seller will not agree to take care of it; a cracked slab, necessity for a new roof, additions not built to code, or if there is an easement on the property that could effect use and enjoyment of the property, or a myriad of other issues. The contract protects the buyer’s right to back out upon discovering issues that make the property less habitable or otherwise affect the condition.

4. Breach of seller’s duties. If the seller does not provide certain documents to the buyer on time, such as property and statutory disclosures, it may be cause for cancellation of the contract. The buyer must wait until the expiration of the time period and then provide a written notice to perform to the seller. If the seller does not do so in the time period provided the buyer may cancel the contract. Time periods are specified in the contract.

The California Residential Purchase Contract is written with protection of the buyer as a high priority. No one wants to sell a home to a buyer who is unhappy about it (or, let me rephrase that – I certainly do not want to do that, and most agents feel similarly). Look at your contingency period as a time to gather all the information you will need, so that you understand any faults associated with the property.

Most sellers will work with buyers on repair requests, but keep in mind that ALL homes in California are sold as is – the seller has no obligation to make any repairs. Limit your requests to those items that are dangerous or alter the habitability or enjoyment of the property. Lastly, keep in mind that in short sale situations and most foreclosure cases, the lender will not agree to any requests for repairs.
Happy home hunting! Please let me know if you have any questions I can answer about the purchase contract or the purchase process. I will be happy to address them in a subsequent blog…just make your suggestions below.